Hedge funds rush to $108 billion, trading where big banks once tread

Some firms on hiring spree

Scott Martin and C.J. Lanktree, who ran a distressed-debt group at Deutsche Bank until last year, joined New York-based Solus Alternative Asset Management LP, where they’ve raised $1.1 billion for two funds that invest in bankruptcy claims.

Such claims are considered risky because they’re backed by companies that have already defaulted on their debt, are infrequently traded and are dependent on the outcome of legal disputes. Banks that decide to hold such investments would be required to have more equity to absorb potential losses compared with higher-rated securities, such as government debt.

“There are businesses based on our capital regulation we’ll not be able to do” that “hedge funds will be able to,” Deutsche Bank Chief Financial Officer Stefan Krause, 50, said at an April 25 conference in Berlin. “If I had to bet who is going to benefit the most post-crisis from the asset appreciation you have coming, then certainly hedge funds.”

BlueMountain Capital

James Staley, the JPMorgan executive who took over the firm’s investment bank in 2010 and was once seen as a candidate to become chief executive officer, quit in January to join $13.6 billion hedge-fund firm BlueMountain Capital Management LLC. BlueMountain was co-founded by Andrew Feldstein, who helped create the credit-derivatives market when he worked for JPMorgan in the 1990s.

BlueMountain reaped as much as $300 million from JPMorgan’s $6.2 billion trading loss last year by betting against the bank and then helping JPMorgan unwind its positions, people with knowledge of the matter said at the time.

BlueCrest, the London-based firm led by former JPMorgan trader Michael Platt, has hired more than 30 people for its New York-based team since 2010, while boosting its holdings by about $12 billion since then, to $36 billion, according to a person with knowledge of the matter who asked not to be named because the expansion hasn’t been publicly discussed.

Next page: Millennium Expansion

Millennium Expansion

The firm added at least three people from Deutsche Bank this year as it seeks to create what its website calls an “investment-bank quality” trading group. Hires included interest-rate derivatives trader William Yearick, mortgage-debt trader John Roach and distressed-credit analyst Matt Siravo, people with knowledge of the matter said at the time.

Last year, BlueCrest hired Eugene Gokhvat from Morgan Stanley and John McNiff, who was co-head of trading in commercial-mortgage securities at Bank of America.

Renee Calabro, a spokeswoman for Deutsche Bank, declined to comment, as did Kerrie McHugh at Bank of America.

Pine River, which hired Steve Kuhn in 2008 from Goldman Sachs to head fixed-income trading, has almost tripled its assets under management in the past 15 months, to $13.5 billion as of April 1 from $5.4 billion in January 2012.

Millennium expanded its staff by 32 percent to 1,250 people in 2012, adding Barclays trader Brian Maggio and Nomura Holdings Inc.’s Markus Weber, while increasing its assets by 25 percent, to $16.9 billion as of Dec. 3 1, regulatory filings show. Some of its hires this year include interest-rates derivatives trader Markus Meister from Deutsche Bank and UBS AG’s Preben Ramm.